Scottish Widows has warned on International Women’s Day that young female savers are set to have £100,000 less in retirement income than their male counterparts.
The insurer said that lower average earnings, part-time work and taking time out of paid employment to care for family is setting women back by almost four decades.
To reach retirement parity, a woman in her 20s today will have to work 37 years longer than a man the same age to accumulate the same income.
Young women were already on the wrong side of the gender pensions gap, which has only widened as a result of the pandemic. 36% under the age of 25 work in hardest hit sectors such as hospitality and retail, and 49% have been furloughed.
Scottish Widows said that any reduction in hours or a career break will have an impact on pension outcomes. For those working part-time or on reduced hours, this can mean lower contributions or missing out on auto-enrolment.
A lack of engagement amongst young female savers is also contributing to lower savings levels. 21% of women under 25 admit that they have not started thinking about retirement. Just 46% of women in their 20s are saving the recommended minimum of 12% of their income, compared to 56% of men.
Jackie Leiper, managing director, pensions, stockbroking and distribution at Scottish Widows, said: “Women were already facing systemic challenges when saving for retirement. We know that young women have been some of the hardest hit by the short-term financial impact of the pandemic and this has only exacerbated the challenge of reaching pensions parity. At the same time, caring responsibilities and high childcare costs are keeping women out of the workforce, lowering their contributions and denting their pension pots.”
A typical young woman might be putting away approximately £2,200 a year, compared to £3,300 for men. That is a difference of more than £1,100 in savings every year. Over a lifetime, this difference only widens as wage increases lead to significant inequalities in retirement income.
If the average woman were to up her contribution at the start of her career to save an extra 4% into her pension, her pot at 68 could be £329,139. This would reduce the gender pensions gap by almost £75,000.
Upping contributions by 5% would increase this to £94,000, which would close the gap almost completely.
Leiper added: “Whilst we can’t change societal norms overnight, progress is still possible to help young women achieve a comfortable retirement. By taking control of their contributions and increasing them as early as possible, young women stand a fighting chance of improving their long-term savings outlook.”